A Conversation with James Robinson, PhD: Is Managed Consumerism The 'Third Way'?

The health care economist says that consumers ought to share in the savings from making the right choices. Insurers, providers, and hospitals should make sure that options exist.

January 1, 2006

The future of market-oriented health policy and practice lies in 'managed consumerism,' a blend of the patient-centric focus of consumer-driven health care and the provider-centric focus of managed competition." So argues the health economist James Robinson in the November-December Health Affairs issue on rethinking health reform. Robinson is the Kaiser Permanente distinguished professor of health economics at the University of California — Berkeley and chairs the division of health policy and management at Berkeley's School of Public Health. His research focuses on medical groups, hospital systems, health insurance, health care consumerism, and capital finance.

Robinson has been widely published in peer-reviewed journals and wrote "The Corporate Practice of Medicine: Competition and Innovation in Health Care," published in 1999. He is a contributing editor of Health Affairs, a member of the board of directors of the Integrated HealthCare Association, and a member of the policy advisory board of the National Institute for Health Care Quality. Robinson earned a bachelor's degree at the University of California — Santa Cruz, and a master of public health and a doctorate in economics at the University of California — Berkeley. Robinson spoke recently with Senior Contributing Editor Patrick Mullen about how the health system finds itself in its current transitional state and how he would like to see it change.

MC: What went wrong with managed competition?

ROBINSON: Managed competition's fatal flaw was that it was a top-down solution to the health care problem, rather than one that fully engaged individual citizens, voters, and consumers. Policy wonks and leaders in the medical profession and insurance industry tried to create a better health care system, but consumers perceived it as a series of restrictions. Consumers had — and still have — an entitlement mentality. Health care should be free, access to providers and services should be unrestricted. The problem was the notion that we could have a painless solution to problems of access, innovation, and affordability without any tradeoffs. The idea that higher quality leads to lower cost turned out to be a myth. So did the notion that there was so much waste in the system that we could improve the efficiency of the system, improve quality, lower costs, and insure the uninsured without putting in any new dollars.

MC: Where does that leave us?

ROBINSON: We are still in the hangover era from that. People still want everything and they still don't want to pay for it.

MC: We've seen the advent of consumer-directed health plans, which are sometimes criticized as a way to shift costs to consumers. Is that a fair criticism?

ROBINSON: Any reform of the delivery system must start with individual consumers and patients who understand that health care is not free; it's a valuable but expensive social resource. The first challenge is making consumers understand that a more efficient health care system directly benefits them because they're spending their own money. The problem with managed care was that a more efficient system benefited executives, stockholders, doctors — everyone but patients.

MC: What's the less charitable interpretation of consumer-directed plans?

ROBINSON: Comprehensive benefit design in the managed care era redistributed income from healthy people. Consumer-directed benefit designs reverse that. This is the revenge of the healthy against the sick — healthy people pay less and sick people pay more. The big dollars in health care are not spent by people buying brand drugs rather than generic drugs. The big dollars are spent by the 10 percent of patients who are very sick, who have cancer and heart disease and severe diabetes, in and out of the hospital. These people will pay more.

MC: You propose managed consumerism as an alternative. How would it work?

ROBINSON: Managed consumerism is a judicious blending of the best elements of managed care with the best elements of consumerism. The best elements of managed care include physician leadership in developing organizations that promote quality and efficiency, and coordinating primary care, specialty care, hospital, and other aspects of delivery. Coordination doesn't mean full organizational ownership. The best of managed care means payment mechanisms that involve prospective payment, not highly inflationary cost-plus reimbursement. It means gathering performance metrics on organizations so they can be compared and can compete on quality and price. Those elements of managed care are valuable and should be protected, promoted, and continued.

MC: What aspects of consumerism are worth keeping?

ROBINSON: The principles that consumers should pay more out of pocket so they understand that health care is valuable, and that consumers should be the ultimate decision makers who have price-conscious and quality-conscious options. Ultimately, consumers are the prime actors in health care.

MC: How would health care change for an average family in a system run under the guidelines of managed consumerism?

ROBINSON: First, managed consumerism is not about how health insurance is paid for. It's about structuring benefits and provider networks. The first generation is a high-deductible product with a lot of cost sharing and maybe a health savings account to help sweeten the tea. It doesn't differentiate between more appropriate and less appropriate services. The second generation needs a less blunt approach. There should be more consumer cost sharing on services where consumer preferences come into play and where consumers can appropriately choose who will provide a service. That would include the choice between brand name and generic drugs, or between a primary care physician and a specialist. Another example might be whether to use the emergency room or another setting for urgent care services. There's also a lot of patient choice involved in diagnostic imaging, in deciding which conditions require an MRI. These are areas where it's easier to introduce consumer cost sharing and make people think twice about cost. There should be less cost sharing on services that are not based on a consumer's decision. Some services are either at the physician's discretion or are a matter of straightforward medical necessity, like a ruptured appendix.

MC: Someone who decides to use the ER as an urgent care center should pay more for that?

ROBINSON: Right. The only way to discourage using the ER for primary care is through cost sharing. No other way works. The second element of cost sharing is to give people price-conscious incentives to use different forms of care. For example, health plans and provider systems are developing care management and disease management programs for diabetes. For whatever reason, many diabetics don't use those programs. Benefit designs could be structured so that if you're a candidate for these programs and you choose to use them, you have lower cost sharing. If you choose not to use them, you get higher cost sharing. Another example would be subnetworks of providers for particular services. For example, health plans can get a better price out of a subnetwork of radiologists, and pass savings to consumers. If you use the subnetwork, you get lower cost sharing. If you don't want to use that subnetwork, that's fine but you pay more. It's just like the rest of the consumer-driven economy: If you buy a more expensive car, you pay more; if you buy a less expensive car, you pay less. In the health care system now, whichever car you pick, you pay the same. That clearly does not encourage people to think about the prices.

MC: Is the market moving toward managed consumerism?

ROBINSON: To some extent, yes. A number of health insurance plans are improving benefit designs to make them less onerous on the chronically ill. They're designing networks which highlight price differences and give consumers more choices. They're developing care management, disease management, and case management programs that allow consumers to reduce their cost sharing if they enroll.

MC: What are some obstacles in the way of change?

ROBINSON: The limit on fine tuning this is the administrative complexity of having different forms of cost sharing for different services.

MC: Isn't that what insurance companies are supposed to be good at, calculating risk and managing complexity?

ROBINSON: Yes and no. Certain services, such as pharmacy, lend themselves better to this structure. But tiers of hospitals and physicians with different copayments turned out to be administratively quite complex and many health plans have pulled back from that.

MC: What needs to happen for health care reform to regain center stage in the national political conversation?

ROBINSON: Two things need to happen. First, dissatisfaction and discontent need to be high enough to bump out other priorities. Second, there must be a vision of what could be done to make things better. Clearly, dissatisfaction and discontent are rising, thanks to rising health care costs, the rising number of uninsured, and continuing evidence that quality, while good, is much lower than optimal. However, in the short term, I don't see a vision of what reform would mean. Rising health care costs are driven by things that people don't want to sacrifice. People do not want restrictions on coverage of new expensive technologies or on their choice of providers, or on their ability to have malpractice litigation. Before change can happen, there needs to be a model that many different stakeholders can look to and agree on and reach for.

MC: How should provider networks be designed?

ROBINSON: The first generation of consumer-driven products has an any-willing-provider design. That's good for promoting choice — not so good for reducing costs. So health benefits and provider systems that can innovate and develop more specialized, more focused, lower-cost delivery options should be available. Consumers pay less if they go into these lower cost options. Right now, if you go to a lower-cost physician or provider organization, that lowers the cost to the insurance company, but it doesn't lower your cost as a consumer. The key is for consumers to share in the savings from making efficient choices. That's what makes it consumer-driven. What makes it managed consumerism is that we need insurers and physicians and hospital organizations to create different options among which consumers can choose. With first-generation consumerism, it's as if instead of buying a car, we have to buy each component and piece them together ourselves. We don't want to buy sparkplugs and transmissions, we want to buy cars, and we want somebody else called a car company to put all those pieces together and make sure they all work together. Then we want to be able to comparison shop the market for cars, not for components. First-generation consumerism is really the market for car components; the principle of managed consumerism is to have the delivery system develop the equivalent of cars and then have consumers choose among cars.

MC: Your work on managed consumerism pre-supposes that meaningful health care reform in this country will be market-directed, and that a single-payer system is simply not going to happen. Is that a practical or philosophical position?

ROBINSON: Let's start with the practical side. I see a lot of discontent, but no sentiment bubbling up among voters, consumer advocacy groups, or politicians for a massive tax increase to support more government-funded health insurance. I don't see that anywhere. More broadly, the trend worldwide is away from centralized governmental decision making and toward decentralized, more individual decision making coordinated by market mechanisms. The United States is in the vanguard among industrialized nations.

MC: What's the outlook for employer-sponsored health benefits?

ROBINSON: Employers want to get out of the benefit business. There's no upside left for them. Their ideal would be a middle ground where they could be a sponsor and make a defined contribution, but not be at risk for open-ended health care inflation. They could help structure benefit choices as in the pension world, so employees could make more intelligent choices, but not be blamed if people make bad choices. It's unclear whether they will be able to find that middle ground. I hope they do, but I think they're looking for an exit strategy step by step.

MC: Who will be the main driver to get to that next generation? Where will the pressure come from?

ROBINSON: The leader right now is the insurance industry because they're closer to employers and purchasers who are demanding it. My hope is that after this current period of turbulence, more creative and efficient provider organizations will take the lead. Physicians and hospitals are closer to care delivery where change really needs to happen and where cost and quality changes happen or don't happen. Right now, providers are consolidating mainly to raise prices.

MC: How do you change that? What's in it for physicians?

ROBINSON: Just like in any market, the reward for efficiency is more customers. It's a chicken-and-egg dilemma. We need to develop products so that consumers who choose more efficient delivery organizations save money and go back to those delivery organizations. Providers need to create those organizations that consumers can choose among. There's a role for entrepreneurs on both sides, on the insurance side to develop product designs that reward consumers for efficient choices, and on the physician and hospital side to develop meaningful organizations that are more efficient, have better measurable quality, and then compete for cost-conscious consumers.

MC: Thank you.

The interviewer, Patrick Mullen, is a former managing editor and editor of Managed Care.